It is sometimes argued by economists that PAYGO schemes give negative incentives for
having children - children are no more necessary for parents as provider of old-age security.
The elderly - so the argument - will receive a pension in a collective pension scheme
whether they have raised children or not. Therefore these schemes are a major reason for
the low fertility rates to be seen in many industrialised countries. However, empirical
evidence on this is not convincing at all. This is not surprising because it is difficult to isolate
the effect of the introduction and the design of PAYGO schemes on fertility behaviour. Even
the cause and the effect are not clear. For example, if the extended family as provider of
protection and support in old age becomes weaker this may stimulate the introduction of
formal pension schemes and not vice versa. This was a major reason, for example, to
introduce social insurance in Germany in the late 19th century.
However, the introduction of funded schemes - following the line of argument regarding
negative incentive effects on fertility - would also reduce the necessity to have children as
means of old-age security. The introduction of a funded scheme would even burden families
additionally because - as is well known - the shift from PAYGO financing (here intrafamily
PAYGO financing) to funding increases the burden of those being in their working age -, if
the level of old-age provision for the present elderly is not reduced remarkably.
When proposing measures in favour of families it has to be decided in what phase of the life
cycle these measures shall become effective. It is obvious that additional costs for families
will arise in the period of raising children, direct costs for financing the living of children and
opportunity costs in case of staying at home and being not employed (or employed on a
reduced level). If - like in Germany - claims in social insurance are based on contribution
payments mainly from labour income, not being employed affects future pension benefits.
There are in principle two different strategies to cope with this problem of direct costs and
opportunity costs during the period of raising children: To improve the possibilities of parents
to combine caring for children and employment. This is in particular depending on
infrastructure like care facilities, all-day schooling etc. This, for example, cannot be realised
by measures of social insurance. Another approach is to improve the possibility for parents to
stay at home and care for children and not to be employed. This must not be focused on
women alone but on both parents. Here above all transfers in cash can help to give the
opportunity to stay at home for some time and to spend more time for child care. But also
measures within social insurance may help to realise this objective.
Behind these two approaches there are different normative positions, especially whether for
example to be employed is the norm and therefore everything should be designed in such a
way as to realise employment also of both parents - and in particular of mothers.5 Or
5 This requires - as already mentioned - a specific infrastructure. But also social security schemes
can be designed in such a way that they provide incentives for taking up employment while
staying at home becomes more costly. For example proposals for a minimum contribution rate (in
pension insurance) for all citizens, independent whether employed or not, could give an incentive